Richard C. Longworth, senior fellow at The Chicago Council on Global Affairs, contributes his knowledge and ideas about issues that affect the Midwest.

Tuesday, January 26, 2010

The Midwest's Broken States

The incompetence of state governments is central to everything that ails the Midwest. States aren't going to go away. The federal system is not about to be repealed. But reams of studies, data, evidence and headlines shows that, in an era of global competition, Midwestern states do much more to hurt than help the people who live within them

What can we do to state government, or for state government, or with state government? Maybe nothing.

So what then? Can the Midwest shake off the Balkanization of the region into a warring league of states and start framing regional policies that don't depend on the whims or desperation of parochical, cash-strapped and overwhelmed governors and legislators?

This is the theme for several future postings on this blog. Indeed, it is the framework for most of what ails the Midwest. All this will point to the big question, which is: How can we move beyond an outmoded economic and political system created by a vanished past and set up new structure competent to deal with an entirely different future?

If states aren't going to go away, can we work around them? Can they be marginalized, left to some important chores, like fixing state roads, running state parks, managing state prisons, overseeing delivery of services, like unemployment pay to the many citizens hurt by the collapse of the Midwest's economy.

The fact is that Midwestern state governments are so consumed by these mandates and so burdened by the after-shocks of the region's economic implosion that they don't have the time, focus or money to deal with the challenges of the post-industry, global future.

It's important to stress that very little of this has to do with corruption or venal politics. These plagues exist, more in some states (like Illinois) than in others. But no governor legislator gets up in the morning thinking how the people of his or her state can be ill-served today. The Midwest has many fine governors -- Jennifer Granholm in Michigan, Jim Doyle in Wisconsin, Mitch Daniels in Indiana, Ted Strickland in Ohio and others. Most of its legislators really do want to help the folks back home.

But all these good people are doing bad jobs. The problem doesn't lie with them and the solution is not to throw the bums out. The problem is the system. Midwestern states today, 200 years after they were first founded, can no longer do the job for the people who elect them.

In my book, I dealt with this "deep, intractable problem." I wrote that "Midwestern states make no sense as units of government. Most Midwestern states don't really hang together -- politically, economically, socially. In truth, these states and their governments are incompetent to deal with 21st-century problems because of their very history, rooted in the 18th and 19th centuries."

Since the book appeared, I've been talking with many Midwesterners who feel frustrated and hamstrung by the states -- by insensitive state control over cities and towns, by state diktats on education, by thoughtless state spending on roads and other infrastructure. But these same Midwesterners still look reflexively to state capitals for permission to do what's needed and the money to make it happen.

I spent a couple of days last week in Minneapolis, at the Midwestern Leadership Conference of the National Educational Association. The NEA is a teachers' union and its leaders focused on union-type issues, like pay and job security. But most of the delegates are teachers and, in breakout sessions and private conversations, they seemed most concerned about giving their students the education they need to cope in a global future. These teachers see state after state short-changing education and are genuinely angry and frightened. But they don't see any alternative to state funding. Which means that things are just going to get worse.

I'd argue that it's time for a whole new attitude toward states and for the delegation of responsibility for the future to people and institutions who are more capable of meeting it.

This is a subject for future posts. Let's look for now at some of the signposts on the road to disaster. This goes beyond the miserable state of the region's infrastructure, like its corduroy highways, collapsing bridges or inadequate fiber optic nets. More important is the fact that states are cheaping out education -- the true key to the global future -- and have all but abandoned support for higher education. The state of Michigan, for instance, provides no more than seven percent of the operating budget at its flagship university in Ann Arbor. Other states provide more, up to 20 percent or so, but even this low percentage is falling -- by about 50 percent in this decade at universities in Iowa and Wisconsin, for instance. The Indiana legislature has voted to put a constitutional amendment capping property taxes at 1 percent of assessed valuation on the ballot: in the present atmosphere, it seems a cinch to pass. This, of course, is an echo of California's Proposition 13, which has pretty well destroyed that state's once-superior educational system. A similar vote in Indiana would ensure that Hoosiers have raised the drawbridge to the future.

As the California case makes clear, Midwestern state governments aren't the only ones in distress. But the Midwest is the American region that has suffered most from the collapse of industrialism and the arrival of globalization. It most needs to reinvent inself. This is going to be expensive, and it's going to take leadership, and state capitals have neither the money nor the vision to do the job.

This collapse in the face of the future has been going on for years, long before the current recession began. But almost all Midwestern governments now face acute and growing budget crises, and are responding with cuts that show their priorities only too clearly. Here's a quick list, drawn up by the Center on Budget and Policy Priorities:

Michigan has cut higher education aid by $135 million, a cut of more than 61 percent, including a 50 percent decrease in competitive scholarships, a 44 percent decrease in the tuition grant program, and outright elimination of nursing scholarships, the Michigan Work-Study Program, the Part-time Independent Student Program, the Michigan Education Opportunity Grants and the Michigan Promise Scholarships. It also (naturally) cut spending on university operations. In addition, it has dropped coverage of some services for adult Medicaid recipients. It reduced funding by 38 percent for a job training and eduction grant program -- this in a state of exceptionally high unemployment and worker distress.

Minnesota is cancelling funduing for the General Assistance Medical Care program, which provides health care for 29,500 low-income adults who do not qualify for federal health care programs. It has capped enrollment for programs helping people with disabilities, and is scaling back programs that let the elderly or disabled get services in their homes. It also has cut by 27 percent a renters' credit program that provides a tax refund to 270,000 low- and moderate-income Minnesota renters.

Ohio has eliminated or made deep cuts in community programs providing mental health treatments for people ineligible for the state's Medicaid program.

Illinois is cutting early childhood education, a proven winner, by 10 percent, with as many as 10,000 children losing this lifeline to the future.

Iowa also is cutting K-12 and early childhood education programs.

Illinois, Iowa, Minnesota, Nebraska, Ohio, and Wisconsin are all cutting operating expenses for higher education. Michigan, Minnesota, Ohio and Wisconsin are cutting payments to local communities, threatening police services, meals for the elderly, hospice care, service for veterans and seniors.

Maybe some of these services will be restored when the recession ends. Probably not. State revenues are falling at the same time that the needs of their citizens rise.

All this goes to the heart of the Midwest's future. Following blogs will investigate how we got here and suggest what to do about it. The problem is so big and complex that any suggestions now can be only tentative. So all comments are more than welcome.

2 Comments

I'm generally with you on state governments. Most of them have not done well and don't seem to understand the problems they face. Also, their political structures make it difficult for them to implement forward looking policies, though that's not a problem for only state government.

On the other hand, I don't think states are uniquely incompetent. Indiana has a mostly funded ten year transportation program. The biggest problem has been red tape and lead time getting projects built, not money. The state has given little money to mass transit, but that's not a unique situation. Very few states nationally have taken the lead role in metro transit systems. Indiana is getting hit on revenues, but has held to a balanced budget without either tax increases or major spending cuts.

I don't support constitutional tax caps there either. However, that is an instructive case. No one would be proposing it without a series of tax disasters that emanated from local government, notably skyrocketing tax bills in Indianapolis, including both residential property taxes and a 65% increase in the city's income tax rate.

Economist Michael Hicks at Ball State hit the nail on the head in describing this when he noted that there seems to be no linkage between taxes in and services out. Local governments expanded expenses at a rate greater than inflation, but services actually declined. With services degrading despite significant increases in taxes, it's no wonder the public rebelled. (Incidentally, the state did, as part of the tax cap deal, bail out all the underfunded municipal pension systems in the state - a huge windfall to cities). The tax cap was part of a tax restructuring deal whereby sales taxes were rates and property taxes capped.

Incidentally, a friend of mine traces the property tax revolt movement to demographics. As baby boomers age and retire, they have proportionally less income and purchases to tax, but more property. In effect, property tax reform is about baby boomers shifting the tax burden to younger people and away from themselves.

The Global Midwest Initiative of The Chicago Council on Global Affairs is a regional effort to promote interstate dialogue and to serve as a resource for those interested in the Midwest's ability to navigate today's global landscape.